Articles & Resources

Four Things Contractors Must Know to Ensure Proper Compensation

03/10/2016 / David Hammargren

In a recent unpublished decision, the Minnesota Court of Appeals dealt with a common pitfall facing contractors in the form of contractual “notice of claim” provisions. In Contractors Edge, Inc. v. City of Mankato[1], the court held that a contractor’s claim for additional compensation was properly denied because the contractor did not follow the claim notice requirements in his contract.

The decision teaches contractors four important lessons: 1. Always provide the written notice required by the claim procedures of your contract. 2. Make sure you provide the notice in writing, where required, and that notice is provided to the proper individuals. Notice to the project engineer may not be sufficient. 3. Follow all of the contract’s notice provisions. Do not assume that you can just provide the first notice and then wait until the end of the job to address a claim. 4. Just because the contract incorporates MnDOT’s standard specifications does not mean that you can ignore the notice of claim procedures in the contract.

What Happened In Contractors Edge, the contractor incurred additional expense and sought additional compensation and a time extension in a proposed change order as a result of additional work performed by the contractor. The contract included the Engineers Joint Contract Documents Committee (EJCDC) general conditions. The EJCDC General Conditions required that written notice of a claim for extra compensation be delivered to the engineer within 30 days of the event requiring extra compensation. It also required that an additional notice of the amount or extent of the claim and supporting documentation be delivered to the engineer and other party to the contract within 60 days of the event requiring extra compensation. The contractor notified the project engineer and the city’s chief inspector that it needed more money because of the extra work it was being required to perform. The project engineer signed a written change order increasing the contract sum by $160,722 and the duration of the contract by 40 days. The contractor performed the work, but the city engineer and the city council ultimately rejected the change order.

The city notified the contractor that it was rescinding the change order. The contractor submitted two letters demanding payment but, importantly, never submitted documentation supporting its claim. The project engineer denied the request for additional payment.

The Pitfall The court analyzed how the contractor fell victim to this “pitfall”: 1. Change Order The contractor was not allowed to recover under the change order because the change order did not meet the contract’s requirements. It was signed by the project engineer, but not the city. Although the contractor could have proven that the parties had established a course of dealing that ignored, or waived, contractual requirements regarding change orders or notice provisions, it did not do so in this case. Therefore, there was no enforceable change order.

2. Claim The court also found that there was no waiver of the notice requirements in the contract’s claim procedure. Although the contractor had given the first, or 30-day, notice, it had never fulfilled the contract’s next notice requirement – it had not provided the extent of the claim and supporting documentation within 60 days. The claim was properly denied.

3. Force Account The Contractor also made a “force account” claim because the contract incorporated MnDOT’s standard specifications. But the court concluded that the inclusion of the force account provisions did not change the fact that the contractor still had to comply with the contract’s claim notice requirements.